Thursday, October 16, 2008

Recessions and Inventory

Every recession brings with it too much inventory of some sort. In typical manufacturing-based economies, the inventory problem is finished goods at suppliers and in the channel that choke the system as demand falls off.

This time around, we have too many houses, too much bad debt, too much debt in general and too many race horses. That's right, horses.

``We are plagued by a vast oversupply,'' James Squires, a 65-year-old breeder, said in a telephone interview from his farm in Versailles, Kentucky. He managed to sell one of the seven yearlings he took to auctions this year. ``You can't give them away. We're going to have to ride them or eat them.''

Unfortunately, stocks are acting like we have too many hedge funds, and are going to have far fewer next year.